Looking backwards at this debacle, it's clear that Obama's economic team did not serve him well, either substantively or tactically. Summers as chair of the Fed was always going to be a lightning rod, because of his temperament, his sketchy record as president of Harvard, his close association with the deregulation that invited the financial collapse, and the high-profile consulting gigs on Wall Street that he took since leaving government in 2010. Tactically, what unfolded in August and September was bizarre. Instead of the administration vetting Summers for hidden confirmation problems, deciding that he was an acceptable risk, and Obama announcing the appointment, what we got was a slow drip of leaks that Summers was the president's first choice. But that only served to rally Summers' opposition. It would have been much more difficult for opposition within the Democratic Party to fester if Obama had simply announced his choice.
In answer to the question, "Why on earth should Larry Summers be chairman of the Federal Reserve?" his supporters usually allege that he is great in a crisis. Whether you believe that depends on your definition of "great." In fact, there is plenty of evidence that Larry Summers is actually kind of terrible in a crisis.
Larry Summers is running hard to succeed Ben Bernanke as chairman of the Federal Reserve. This is a terrible idea. Once appointed chief of economic policy, Summers with Tim Geithner was a prime architect of propping up and bailing out the biggest banks, rather than cleaning them out and altering the conflicts of interest at the core of Wall Street's business model. Today, the banks are more highly concentrated, more profitable, and less in the business of financing the real economy than ever. This is Larry Summers' legacy. The prime alternative to Summers is Fed Vice Chair Janet Yellen, who is very much like Bernanke, only better. She has gone even further in expressing concern for the economy's persistent unemployment and in criticizing the bipartisan obsession with deficit reduction. Yellen deserves to be Fed chair purely on the merits. It pains me to write that if she gets the job, one other major contrast with Summers will weigh in her favor. She is female.